Budget 2025 must focus on the middle class

In an era of rising taxes, higher GST and stagnant salaries, the government needs to show compassion, supported by good policies that can make the middle class spend again. Can they do that?

By E Jayashree Kurup

The government cannot ignore the middle class anymore. They supported the Modi government in its first rise. They travelled on the roads that linked remote villages and difficult to access territories across the country. They also paid their taxes that allowed various governments to offer largesse to woo the electorate. 

However, the middle class always pays; it never receives the largesse. These people are the ones who follow the rules, are impacted when the interest rates go up and stop buying property when EMIs go out of hand. They also buy cars and bikes, keeping the industry moving. They buy phones, processed foods, consumer durables, pay their bills on time, work hard even as industry leaders advice them to work 70-90 hours to earn the salaries that help them spend on a consumerist lifestyle. 

The middle class is also the most vulnerable segment of haves in the country. The people have enough to aspire to a rich man’s lifestyle. They save enough to give that easy life to their children. Many opt for that good life and choose to live that life sans children. But one big segment constantly tosses them out of the reckoning - the wealthy. 

During the Covid crisis, the middle class stepped out into the property markets after almost 7-11 years, shopping for a lifestyle that would keep them, their children and their elders safe. At the same time, they needed space to continue working to afford that lifestyle. The three years allowed them to buy houses they could not have imagined earlier. Packed with services, completed and off-the-shelf, in the cities and the suburbs and peripheries. 

Also, the middle class changed its consumption patterns. From small homes to bigger ones, from smaller cars to bigger SUVs, from weekend drives out of the city to exotic holidays abroad. After all, what were they earning for? But for every few middle class spenders, there was an ultra rich spender who could step into the spotlight with bigger wallets and bigger asks. That one purchase could overshadow the value of the middle class buyers. 

Mid-segment homes of Rs 80 lakh to Rs 1.5 crore in the big cities started giving way to larger 4000-5000 sq ft homes worth Rs 10 crore to Rs 50 crore. They called it the premiumisation of the Indian housing market, and pretty much every other sector. The middle classes stepped away while the ultra-rich bought second, third, and even fourth homes as investments. From a 40-60% market share, the middle-class buyer now attracts only 16% of the developer mindspace. 

The bull run has slowed in the past quarter. Middle class consumption has slowed down and the buyers have taken to what they know best, saving their cash for the rainy day that’s coming. Food inflation pares off more from their earnings. The worst was when salaries stopped growing. Salaries are the lifeblood of the middle class and it is now living from one pay cheque to the next.

Can the government afford to neglect the middle class in favour of the ultra-rich, who are  India’s largest investors today? Or, in favour of the poor who can be bought as voters with a few concessions and freebies? The middle class is the largest segment of consumers. They buy for end use and therefore are capable of sustained spends. They earn well and want to upgrade their lifestyles. They boost the food and restaurant sectors, the car and bike industries, and the mobile and gadget segments. Squeeze them and they go into hibernation mode and can make the same products and services last longer with minimal spend. Cars are changed in five to 10 years, new houses give way to refurbishment of existing houses with a fresh lick of paint. And the economy shows signs of stress. 

The middle classe today is a disillusioned lot. Budget 2024 showed them that the government did not care enough to leave more money in their wallets to spend. Direct tax benefits that should have kicked in when GST picked up were simply subsumed in cosmetic changes. Tax deductions that the earlier years had promised were retired way before their end-of-life. What luxuries they were getting used to started attracting more GST as premiumisation would help the government squeeze more out of them. 

Instead of devising ways to make the lower- and middle-income housing more attractive for developers, the country glowed in the benefits to the Indian economy from premium sales. But premium always thrives when the middle class keeps the volumes going in the economic landscape. 

Budget 2025 is crucial for the Modi government in its third term. The middle class has backed the government, albeit less enthusiastically. They have shown that there are fewer choices. But ignoring the middle class can also cost the country the economic prosperity that has made the world sit up and take notice of India. Finance Minister Nirmala Sitharaman needs to pull a rabbit from the bag to smooth the ruffled feathers of the Indian middle class. Taxes, housing, and aspirations must all be shown to have counted in policy making. Give them an inch and they will give back many miles. Can the government show the middle classes that it cares; with Budget 2025?

E Jayashree Kurup is Director Wordmeister Real Estate & Cities and a writer-researcher in real estate. The views expressed in this piece are personal